Should You Get A Federal Income Tax Refund Anticipation Loan

Every year the airwaves are flooded with advertisements promoting the ability of individuals to take advantage of their ability to get an income tax refund by quickly getting access to their funds. The product promoted is called an income tax refund anticipation loan.

What this amounts to is a short term loan secured by the income tax refund due to be returned to a taxpayer. The types of loans are offered by tax preparation services that will prepare your tax return and provide the loan. The pitch is aimed at those in desperate need to obtain their refund funds as quickly as possible to meet critical expenses.

What Are These RAL And What Do They Cost

A good description of refund anticipation loans is included on the State of Wisconsin Department of Revenue website section titled “Refund Anticipation Loans (RALs).” What is clear from the description of this loan product is that the loan recipient could pay up to 10% of their refund for the privilege of fast access to cash one interest and fees are deducted from the refund amount. There is also another pitfall for the unwary; some tax filers could actually owe money to the loan company if their refund is somehow docked for things such as unpaid taxes or child support payments. That’s correct, if somehow your refund is reduced by something unexpected you could owe money to the loan company.

Are Income Tax Refund Anticipation Loans Predatory Products

Some question if these refund anticipation loans are products that prey on low income and certain targeted members of our society. An article titled “Tax refund anticipation loans on their way out” by David Pitt and published on the Contra Costa Times website goes into addition history of this financial product. It seems that this offering is targeted at low income citizens and roughly aims at the same group that utilizes payday loan lenders.

It seems that the IRS is helping to push these loans out of existence. According to the article the Internal Revenue Service stopped providing information to refund anticipation loan lenders on what taxpayers owed in unpaid taxes, child support and federal student loans. Without knowing what a taxpayer could owe that could reduce their actual refund compared to what was filed, the risk of extending these loans went up dramatically.

How Quickly Do You Need Your Federal or State Tax Refund

Refund anticipation loan companies promise fast access to cash and 24 to 48 hour turnaround is not uncommon, but is 10% or more of your tax refund worth it. With e-filing and direct bank deposit the IRS takes about 10-business days to process your refund and some states are faster. If you are due a $1,000 refund and pay 10% for your refund, your lose $100 of your money. Is waiting 10 business days worth $100 extra dollars in your pocket, only you know?